FDI IN AUTOMOBILE

SECTOR IN INDIA
Automotive Sector:
India
 The auto sector is one of the main
drivers of the economy.

 Every commercial vehicle manufactured,

creates 13.31 jobs

 Every passenger car creates 5.31 jobs

 Every two-wheeler creates 0.49 jobs in

the country.
 Besides, the automobile industry has an

output multiplier of 2.24, i.e. for every

additional rupee of output in the auto
industry, the overall output of the Indian
Government
Initiatives


Special importance to road infrastructure



 ‘Golden Quadrilateral’ project (highway

network in India connecting Delhi,
Mumbai, Kolkata and Chennai)
 'North-South" and "East-West" corridor
projects.
The excise and customs duties on cars and
auto-components have been continuously
declining over the past five years.
Incentives to facilitate
Factors which are attracting
FDIs in Automotive sector
 The positive demographic factors,
 stable macro-economic environment
 and pro-reform policies of the
government
 Availability of skilled Manpower
 High growth potential: Rising Income
levels

Auto component Industry

 The Indian automotive component

industry manufactures a wide range of
parts including
 Castings,

 Forging,

 Finished and

semi-finished components,

 Assemblies and

 Subassemblies.


AUTO COMPONENT INDUSTRY…

T h e re is a lso a b o o m in a u to a n cilla ry co m p a n ie s.

In d ia is a n a ttra ctive o u tso u rcin g d e stin a tio n fo r
g lo b a l a u to co m p a n ie s b e ca u se o f its stro n g
e n g in e e rin g skills a n d lo w co sts.

Sourcing parts from India is 10-20% cheaper for US
auto makers and about 50% cheaper for their European
counterparts.

Indian auto component industry is quite comprehensive
with around 500 firms in the organized sector
producing practically all automotive components; there
are more than 10,000 firms total
 Reasons for Auto component
industry development
Lower operational costs:
Increased automation

Superior engineering skills:

skilled Manpower

Modest domestic market growth

The sophistication of

India’s IT industry

 Simulations and development of

 automotive designs
Increasing free trade agreements



FDI up to 100 percent, has been permitted under automatic route
to this sector, which has led to a turn over of USD 12 billion in
the Indian auto industry and USD 3 billion in the auto parts
Opportunities of FDI in the Automobile Sector in India exist in

qEstablishing Engineering Centres

qTwo Wheeler Segment
qExports
qEstablishing Research and Development Centres
qHeavy truck Segment
qPassenger Car Segment
qarts industry
Stats Speak
 The Auto Industry in India has witnessed very
high growth rates: approximately 14% CAGR in
vehicle production in the last 3 years
 11 million vehicles produced in India in 2006-07
 1.5 million Passenger Cars; 21% CAGR over the
last 4 years
 8.4 million Two-wheelers (motor cycles and
scooters); 13.3% CAGR over the last 4 years
 0.52 million Commercial Vehicles; 25.7% CAGR
over the last 4 years
 0.56 million Three-wheelers; 31.6% CAGR over the
last 4 years
 However, India still has low vehicle penetration
 Only 7 cars, 50 two-wheelers per 1000 individuals

 Indian Govt. aims at making India as a
platform for outsourcing and global R&D
hub for auto components.
 A recent study conducted by McKinsey
suggests that India's auto-components
exports has the potential to grow from
$1 bn in 2003 to $20-25 bn in 2015.

Exports


 Vehicle exports from India are in an

upswing and this trend looks set to
continue.
 Europe, Middle East and African and Asian

markets are among the main markets

for both,
parts as well as CBU (Completely Built Up)

vehicles.
Present status



 The car penetration level still continues to
remain low in India, which stands at 7 cars per
1000 persons.
 Thus, there lies a huge opportunity for auto
companies not just in the domestic market
which is set to grow at a pace of 10-15%
year-on-year due to the booming economy
but also in exports because of the
competitiveness and consolidation of the
auto components sector.
 Auto components market is fast becoming the
fastest and the most attractive market in India
Challenge before us
 Total Automobiles in India – 11 million
 Total accidents – 7-8 millions/ annum
 Total Automobiles in US -- 46 million
 Total accidents – 5 million/ annum


So we need better traffic management in



terms of Infrastructure, rules and

regulations, proper driving licenses, a
proper mindset.



PROGRESS…
Impact of Protectionist
Measures
 Post colonial government was over cautious
 Regulations against foreign companies and
requirement of elaborate licensing forcing them
to start phased manufacturing of cars that
compelled big players like General Motors and
Ford to leave
 Results: duopoly of Hindustan Motors and Premier
Automobiles whose cars were expensive, large
and gave poor mileage thus confining itself to
the elite of the country
 Even the volume was controlled and consequently
low
 The auto sector suffered from inertia and
complacency resulting in slow technological
changes and cost reduction thereby making it an
The Positives
 As a consequence of the confined sector
a large base of technical workforce
developed
 Impetus to an indigenous auto
component industry that went on to
become one of the fastest growing in
the world
 Compulsion to create its own base of
machinery
 Slow but sure growth
 2 ) M a ru ti S u zu kiE ra ( 1 9 8 1 – 1 9 9 1 )

S u zu ki co m p a n y o f Ja p a n fo rm e d a 5 0 : 5 0 jo in t ve n tu re
w ith th e g o ve rn m e n t o f In d ia – M a ru tiU d yo g Ltd
O U TC O M E S …

Trig g e re d a re vo lu tio n a ry p h a se in a u to in d u stry

R e va m p e d th e su p p ly ch a in m a n a g e m e n t in a u to
in d u stry

B ro u g h t a b o u t m a ssive tra n sfe r o f te ch n o lo g y

M a ru ti h e ld 7 5 % sh a re in In d ia n ca r m a rke t in 1 9 9 1
R e a so n s…

H ig h p ro file b a kin g fro m th e th e n p o litia ca l

e sta b lish m e n t
Pro te ctio n fro m co m p e titio n – S u zu ki
exp a n d e d th e ir o p e ra tio n s siza b ly d u rin g th is
p e rio d
Tig h t im p o rt re strictio n s o n
a sse m b le d / o ld / n e w ca rs
Po st Lib e ra liza tio n E ra ( 1 9 9 1 )
 How did FDI liberalization contribute to
Indian firms enhancing their
competitiveness?

ØPro lo g u e ØT h e sto ry ØE p ilo g u e

T h e M a ru tiS u zuT hkiE
e p orast lib e ra liza tio nT heeraw a y fo rw a rd
Prologue
the Maruti Suzuki Era
 First ever FDI in JV with the Indian Govt. with tariff
protection
 Economies of scale in production achieved with
production levels bordering efficiency
 Introduced efficient Japanese SCM techniques
 Brought transfer of technology
 Improved supplier manufacturer relationship with
technical assistance
 The Indian auto industry had changed forever and
the performance of Maruti Udyog was a
harbinger of the boom in FDI in the automobile
sector

The Story
the post Liberalization Era
 The onset of Economic Liberalization that began in
1991 brought with it
– 100 % FDI in auto sector
– Manufacturing and imports made free from licensing and
approvals
– The custom duty on inputs and raw material was considerably
and periodically reduced
– No local content regulation in the auto industry
 This led to multi fold rise in market competition
compelling companies to embrace the latest
technology , improve manufacturing, cut
costs, raise production volumes and capacity.
 Increased proficiency in understanding global
automotive standards and technical designs
The Story Continued…..
 Increased automation leading to cost economies in
production
 Flexibility in small batch operation
 Most importantly growing IT capability for design
development and simulation
 Complemented by availability of skilled
manpower, a huge domestic market and
growing purchasing power the Indian auto
industry grabbed a sizable portions of the
production pies
 Have become a excellent base for prototyping,
testing, validation and production of auto
components
Epilogue
The Way Forward
 Along with emerging as one of the most attractive
markets, India is fast becoming a key source for
auto components given our capabilities in
design, engineering and manufacturing coupled
with cost advantage, thus increasing our global
competitiveness.
 Competition in the domestic markets is increasing
as large investments are going into increasing
production capacities, expanding R & D and
overseas acquisitions.
 Quality up gradation of Indian auto component
industry
THE END